OFF THE SHELF; The Hunger Of the Media Empire

By HARRY HURT III

Published: October 18, 2009

THERE are moguls running amok in Hollywood, and like financial Godzillas, they prey on gullible investors on Wall Street and Main Street to feed their egotistical hunger for fame and fortune. That is the premise of ''The Curse of the Mogul: What's Wrong With the World's Leading Media Companies,'' by Jonathan A. Knee, Bruce C. Greenwald and Ava Seave (Portfolio, $26.95).

The authors loosely define the media moguls in question as the heads or former heads of the world's 15 largest media companies. This is a group that includes Rupert Murdoch (the News Corporation), Sumner M. Redstone (Viacom), Brian L. Roberts (Comcast), Michael D. Eisner (former chief of Disney) and Jean-Marie Messier (formerly of Vivendi). Their curse, the authors say, can show up in the form of qualities like hubris, overarching ambition and self-delusion.

Since 2000, the largest media companies have collectively written down $200 billion in assets, the authors write. ''These write-downs represent the real destruction of value from relentlessly overpaying for acquisitions, 'strategic' investments and contracts for content and talent,'' the book says. ''The magnitude of these losses also reflects the level of desperation among media moguls faced with new competitors, new technologies and new customer demands.''

Bringing academic, financial and managerial credentials to their scorching critique of the media industry, the authors aim to ''break the curse'' by debunking the myths that they say underlie common media-mogul mistakes. They purport to offer alternative management guidelines based on traditional economic theory.

A core myth put forth by the media industry, the authors say, is that it ''involves managing creative talent and artistic product and as such is not subject to appraisal using traditional strategic, financial or management metrics.'' But the authors call this an excuse, noting that the stock of the 15 largest media conglomerates, on average, has significantly underperformed the broader market over the past decade.

''Synergy'' is one of the most overused buzzwords of misguided media owners, the authors say. They note that Disney said its $19 billion acquisition of Capital Cities/ABC in 1996 would create synergy between the movie studio and the broadcasting network. In fact, ABC fell from first to third in the network rankings, and film production margins shrank. What did bolster Disney's bottom line was a relatively simple, unglamorous decision to raise ticket prices and increase capacity at the Disneyland and Disney World theme parks.

Mr. Knee, Mr. Greenwald and Ms. Seave are even more critical of Comcast's acquisition of AT&T's cable business in 2001. The authors concede that there seemed to be legitimate potential synergy between the cable television operations of the two companies. But AT&T's chief, C. Michael Armstrong, forced Comcast, led by Mr. Roberts and family, to raise and reraise its bid.

Comcast paid about $70 billion in stock and debt for AT&T assets that had been valued by outsiders at closer to $50 billion. ''The moral of this story is that you can want something too much, and media moguls frequently do,'' the authors write.

The book revisits several other megadeals that have been the subject of previous books and articles, among them the disastrous merger of AOL and Time Warner and Mr. Murdoch's acquisition of Fox, for which he acknowledges he ''overpaid.''

In the wake of the Fox deal, Mr. Murdoch became more competitive about bidding for N.F.L. rights, putting a wrench in a tradition of cooperation among ABC, NBC and CBS -- ultimately at a huge cost to all the major networks, including his own, the authors assert.

What makes ''The Curse of the Mogul'' more than a mere rehash of familiar business debacles is its disciplined, cogent analysis of what does and doesn't constitute real competitive advantage.

For example, having ''deep pockets'' is not an advantage, the authors say, because most of the players have them. By contrast, having ''customer captivity'' -- a synonym for habit or addiction, according to the authors -- is a true advantage, as evidenced by the success that Michael R. Bloomberg enjoyed once his customers in the fixed-income industry became dependent on using his computer terminals.

In the future, the authors argue, media moguls should rededicate themselves to seemingly mundane guiding principles. The authors urge moguls to realize that ''efficiency is cool'' and that there is nothing wrong with operating businesses effectively by focusing on local markets where ''barriers to entry are easier to defend.''

Likewise, they urge moguls to find areas of collaboration so they ''can begin to build an alternative universe in which mutual benefits replace mutual assured destruction.''

''THE CURSE OF THE MOGUL'' is itself somewhat cursed by the authors' often pedantic approach to their subject matter. General readers may find tough going when encountering sentences like this one: ''To the extent that scale economies are driven by the existence of fixed costs, these consumer protections also provide additional competitive protection to the industry incumbent with the greatest customer base across which to spread these burdens.''

Even so, the book demonstrates convincingly that the ''single most consistent reason for underperformance by media companies is bad acquisitions,'' and that those who suffer most are the public shareholders of the acquiring companies whose stock value is often decimated.

The authors also remind media moguls that ''there is no shame in giving money back to the shareholders'' through profits and dividends -- a blockbuster concept if ever there was one.